121st Maine Legislature
		Office of Fiscal and Program Review
		LD 1893
		An Act To Impose Limits on Real and Personal Property Taxes
		LR 2760(01)
		Fiscal Note for Original Bill
		Initiated Bill
		Committee: Taxation
		Fiscal Note Required: Yes
Fiscal Note
Initiated Bill - Referendum Costs
Municipal Revenue Loss
Referendum Costs		Month/Year	Election Type	Question	Length
		Nov-04	General	Initiated Bill	Standard
	The Secretary of State's budget includes sufficient funds to accommodate one ballot of average length for the general election in November. If the number or size of the referendum questions increases the ballot length, an additional appropriation of $8,000 or more may be required.
Fiscal Detail and Notes
	This citizen-initiated bill will be presented to the voters at the November 2004 statewide general election.  If approved it will cap the amount of revenue that a municipality may raise from taxes levied on real or personal property to a maximum of 1% of assessed value, or 10 mills, establish property valuations based on 1996-1997 values and limit the increase in assessed value to 2% per year unless the property is transferred.  Certain debt service expenditures will be exempt from the cap.  This bill will first apply to property taxes based on the status of property on April 1, 2005.
	This analysis of the revenue effect on municipalities is based on aggregate historical data and does not provide any factor for growth of either valuations or property tax commitments.  It also makes no projections of the effect on individual local units of government nor attempts to anticipate any state or local decisions.  It uses the most recent actual historical data, including the 1998 and 2004 State Valuations and the 2002 Total Property Tax Commitment, to provide a sense of the potential property tax revenue loss in fiscal year 2002-03, assuming no change in spending at the local level.   The 1998 State Valuation is based on the 1996 local valuation and the 2004 State Valuation is based on the 2002 local valuation.  The 2002 Total Property Tax Commitment represents the total commitment for all municipalities for the municipal fiscal year that begins in calendar year 2002.  For the majority of municipalities, that fiscal year runs from July 2002 through June 2003.
	Of the $1,562.5 million Total Property Tax Commitment for 2002, $962.3 million was for education (based on data from the Dept. of Education) and the balance of $600.3 million was for other municipal services.  This analysis assumes that $52.2 million of the $1,562.5 million total tax commitment for 2002 is for pre-existing debt service that municipalities will be allowed to pay for with property tax revenue raised outside of the 10.0 mill cap.   Of the $52.2 million for debt service, $35.1 million was for education and the balance of $17.1 million is assumed to be for other municipal services.
	This initiated bill, as proposed, would limit property tax valuation to 1996-97 values, with some exceptions.   Assuming that 60% of the property would be valued at April 1, 1996 values and that the exceptions (40%) would be valued at April 1, 2002 values, the total valuation to which the limit is to be applied is $82,457,420,000.  Therefore, the 10 mill limit or 1% value would be $824.6 million.   Adjusting for debt service, certain portions of which are exempt from the millage limit, the estimated loss of revenue to municipalities would have been $685.7 million.  See summary below.
					FY 2002-03 Amounts
	2002 Property Tax Commitment				1,562.5	million
	Less Debt Service allowed to be collected above the Limit				(52.2)	million
	Less 1% of Adjusted Property Values (10 Mill Limit)				(824.6)	million
	Estimated Municipal Revenue Collected above the Limit				685.7	million
	An Opinion of the Justices of the Maine Supreme Judicial Court concludes that provisions of LD 1893 limiting property tax valuations to 1996-97 values unless the property is transferred may violate the Maine Constitution's requirement that property taxes be based on "just value".  Since this opinion is not binding, this fiscal note does not assess the fiscal impact if, in the future, portions of the bill are determined to be without effect due to judicial decision.
	LD 1893 would also have an impact on revenues raised by counties and water and sewer districts that raise revenue from the property tax.  The effect on these units, which are components of the municipal services mill rate, can not be determined.
Other State Impacts:
	Reducing municipal property taxes, by either rate or value limitations, will have the direct effect of reducing various state appropriations for payments to municipalities as reimbursement for lost property taxes, including homestead property tax exemptions, veterans' exemptions and tree growth tax law valuation.  It will reduce the amount claimed as a deduction for property taxes on income tax forms, increasing individual income tax revenue.  The effect on income tax revenue and General Fund appropriations can not be determined at this time.
	The fiscal impact is presented on an aggregate level.  The impact to each individual municipality will depend on the total mills raised and decisions made by each.  Municipalities with mill rates below the cap will not be affected.  It should be noted that, per Title 20A, §15610 sub-§C, in order to receive state funds for education, each local school unit must raise its "required local share of the foundation allocation" as determined by the school funding formula.  If, in response to budget cuts made to stay under the cap, a school unit fails to raise 100% of its "required local share of the foundation allocation", its state subsidy amount would be reduced by the same percentage as the reduced local share.  In fiscal year 2002-03, the required local share was 8.5 mills.